Shutterstock

As proposals to ban surprise medical bills move through Congress and state legislatures with rare bipartisan support, physician groups have emerged as the loudest opponents.

Often led by doctors with the veneer of noble concern for patients, physician-staffing firms—third-party companies that employ doctors and assign them out to health care facilities—have opposed efforts to limit the practice known as balance billing. They claim such bans would rob doctors of their leverage in negotiating, drive down their payments and push them out of insurance networks.

Opponents have been waging well-financed campaigns. Slick TV ads and congressional lobbyists seek to stop legislation that had widespread support from voters. Nearly 40% of patients said they were “very worried” about surprise medical bills, which generally arise when an insured individual inadvertently receives care from an out-of-network provider.

But as lobbyists purporting to represent doctors and hospitals fight the proposals, it has become increasingly clear that the force behind the multimillion-dollar crusade is not only medical professionals, but also investors in private equity and venture capital firms.

In the past eight years, in such fields as emergency medicine and anesthesia, investors have bought and now operate many large physician-staffing companies. And key to their highly profitable business strategy is to not participate in insurance networks, allowing them to send surprise bills and charge patients a price they set—with few limitations.

“We’ve started to realize it’s not us versus the hospitals or the doctors, it’s us versus the hedge funds,” said James Gelfand, senior vice president of health policy at ERIC, a group that represents large employers.

“They have money to burn,” said a Democratic congressional aide with knowledge of the lobbying efforts “They’re in take-the-bill-down mode.”

Private equity firms and the staffing companies they own have a lot to lose, too. While doctors largely once worked for hospitals or had individual contracts, many hospitals now rely on these huge staffing businesses to provide doctors for various departments. Companies like Envision Physician Services and TeamHealth provide doctors to dozens, sometimes hundreds of hospitals. Private equity firms back these ever-growing outsourced staffing companies.

Because patients have no effective way to protect themselves from unexpected medical bills, even knowledgeable, proactive people with comprehensive insurance can find themselves whisked away to an out-of-network hospital in an emergency or treated by an out-of-network anesthesiologist at the in-network hospital they selected.

Several lawmakers have adopted the issue, one seemingly ready-made for campaign season: In fighting surprise bills, they are attacking a practice both reviled by the public and easy to explain.

What’s harder to explain is where the money on the other side of the campaign comes from. Coalitions like Physicians for Fair Coverage and dark-money groups with innocuous names like Doctor Patient Unity have flooded the airwaves with ads urging people to call their lawmakers and voice opposition to ending surprise bills. And those lawmakers are overwhelmingly senators facing difficult reelection fights next year, who might be hesitant to vote for change—especially if it means more expensive ad campaigns aimed at taking them down.

To understand the power and size of private equity in the U.S. health care system, one must first understand physician-staffing firms.

Increasingly, hospitals have turned to third-party companies to fill their facilities with doctors. Among driving factors: physician shortages, a bigger insured population because of the Affordable Care Act and an aging population, according to research from the investment firm Harris Williams & Co.

In some areas, doctors have few options but to contract with a staffing service, which hires them out and helps with the billing and other administrative headaches that occupy much of a doctor’s time. Staffing companies often have profit-sharing agreements with hospitals, so some of the money from billing patients is passed back to the hospitals.

The two largest staffing firms, EmCare and TeamHealth, together make up about 30% of the physician-staffing market.

That’s where private equity comes in. A private equity firm buys companies and passes on the profits they squeeze out of them to the firm’s investors. Private equity deals in health care have doubled in the past 10 years. TeamHealth is owned by Blackstone, a private equity firm. Envision and EmCare are owned by KKR, another private equity firm.

With affiliates in every state, these privately owned, profit-driven companies staff emergency rooms, own dialysis facilities and operate physician practices. Research from 2017 shows that when EmCare entered a market, out-of-network billing rates went up between 81 and 90 percentage points. When TeamHealth began working with a hospital, its rates increased by 33 percentage points.

A study by the Kaiser Family Foundation found that 1 in 6 Americans with insurance were surprised by a medical bill after treatment at a hospital in 2017.

That is no coincidence: In many states, balance billing—when a provider charges a patient the difference between their fee and what their insurance company paid—is legal, so physician-staffing services have little incentive to contract with insurance companies and provide in-network doctors.

“These physician-staffing companies are benefiting tremendously from the ability to bill out-of-network,” said Zack Cooper, an associate professor of public health at Yale, who has studied physician-staffing firms and balance billing. “It’s a small but profitable sliver of the health care system that these firms are using to make pretty significant amounts of money.”

Cooper said the business models are built on the ability to get profits from balance billing.

“Private equity firms are buying up physician practices that allow them to bill out-of-network, cloaking themselves in the halo that physicians generally receive and then actively watering down any legislation that would both protect patients but affect their bottom line,” Cooper said.

The staffing firm Envision disputed this assessment of its business model. An emailed statement said more than 90% of its business comes from in-network agreements and that the company continues ”actively advocating for a federal solution to surprise medical bills.”

The two possible solutions on the table in congressional legislation are arbitration and benchmarking.

Arbitration sends the insurers and health care providers through an independent review to determine a fair price in the event of a balance bill.

Under benchmarking, out-of-network physician charges are paid by the patient’s health plan based on an average of what other in-network doctors in the area are paid. Money is being spent on all sides of the debate, but for the physicians and private equity firms, it’s weighted most heavily on the side of arbitration.

Assorted groups have organized themselves into different coalitions and mega-groups to pool resources for lobbying and ads. On the side of benchmarking, there is the Coalition Against Surprise Medical Billing, made up of employers and insurers like Blue Cross Blue Shield, the Association of Health Insurance Plans and ERIC, which represents large employers.

On the arbitration side, there is Out of the Middle, Physicians for Fair Coverage, SOAR and Doctor Patient Unity, to name a few. Ostensibly, these are composed of doctor and hospital groups.

“It’s important that federal legislation to end surprise billing also incentivizes all providers and insurers to negotiate in good faith in order to increase the number of in-network providers and ensure patients’ continued access to high-quality medical care,” added Megan Taylor, a spokeswoman for Physicians for Fair Coverage.

Yet these groups are dominated by private equity and hedge-fund-backed organizations. Physicians for Fair Coverage is made up of ApolloMD (a staffing firm owned in part by the investment firm ValorBridge), Radiology Partners (a staffing firm owned in part by the investment firm New Enterprise Associates) and a trio of staffing firms called US Acute Care Solutions, US Radiology Specialists and US Anesthesia partners (all partly owned by the investment firm Welsh, Carson, Anderson and Stowe).

Among the groups listed as lobbying on surprise bills are hospital groups like Christus Health (which uses EmCare) and Wellstar Health Systems (which uses ApolloMD). In addition, HCA, a large hospital chain that has had a joint venture with EmCare, has also been active on these issues.

Even the groups that appear to represent independent doctors are tied to private equity and staffing firms. Out of the Middle consists of trade organizations for specialty doctors, like the American College of Emergency Physicians (ACEP) and the American Society of Anesthesiologists and many others. It’s mostly run by ACEP, whose immediate past president, Dr. Rebecca Parker, was also a senior vice president at Envision.

Spending on lobbying around this issue has been generous, according to disclosures from the Center for Responsive Politics. The staffing firm Mednax spent $180,000 on lobbying the House and Senate. TeamHealth and TeamHealth Inc. together spent $100,000. Physicians for Fair Coverage spent $145,000. US Physician Partners, an “informal lobbying group” that never lobbied before 2019, spent $130,000.

“There’s no way we can match them,” said Gelfand, from ERIC. “We’re entering this debate knowing we’re being horrifically outspent.”

Kaiser Health News (KHN) is a nonprofit news service covering health issues. It is an editorially independent program of the Kaiser Family Foundati